Article by Tifanie Jodeh: Legal Issues Surrounding Funding Via Private Equity

Nailing down investors is just the beginning of the story and a very integral part of the production process. You should be aware of the security laws that regulate how investors make investments into a project and how they hope for a large return but understand the risk of loss. 

Generally, Producers are required to register any offer or sale of securities unless it is exempt (as discussed below).  The registration process takes time and can be expensive. Instead, Producers sometimes operate on the practical exemptions for acquiring investment.

The most common exemption for entertainment projects is found under Rule 506.  This is called the "safe harbor" clause.  Rule 506 makes sure a production company meets the requirements that the investment request is a private offering.

Elements to Rule 506:
To qualify under Rule 506 it is important to address the following items:

1. No General Solicitation and General Advertising.

The Producer cannot engage in "general advertising" or "general solicitation".

This means that offers and sales of securities cannot be made through traditional advertising media such as radio, television and the Internet. Representatives of the production company must have a substantive pre-existing relationship with the person or entity being offered the securities. So, in other words, a friends or family type relationship.  This "pre existing" relationship is one which is present before a Producer approaches a potential investor to invest.   Even more, the producer must establish that the relationship is substantive; one where the representatives of the production company believe that the person or entity being offered the securities is sophisticated in investing. The combined effect rule (which is interpreted by Securities and Exchange Commission) can sometime conflict with how you have witnessed in the entertainment business.

2.  Purchaser Limitation. 

The sale of any security may be made to an unlimited number of "accredited" investors (meaning sophisticated, high net worth investors who can meet certain requirements as set forth in the SEC rules) and up to 35 unaccredited investors. These unaccredited investors (or their representatives) must have sufficient knowledge and experience in financial and business matters to make them capable of evaluating the merits and risks of the prospective investment.  

3. Time Restriction/ Securities "Restricted"

The securities may not be resold for a certain time period and such re-sales are governed by securities laws. Producers must try to assure that an investor is purchasing the securities for investment purposes and not just to turn around and re-sell them.

4. Information Disclosure

One of the main goals of securities laws is to allow investors to make educated and informed decisions based on accurate information provided by the Producer.  If any unaccredited investors are sold securities in an offering, then specific information disclosure is required to be provided such as in a private placement memorandum. On the other hand, if the investment is being made by accredited investors then there are no specific disclosure requirements other than disclosures required to avoid the anti-fraud provisions of the securities laws. It is recommended, that the Producer provided extensive disclosure information to avoid the potential lawsuit of an unhappy investor.

5. Form D Filing

Lastly, a Form D is required to be filed within the first the 15 days of the first allocation of a security, plus filings of the form must be made in most states where sales are made to residents of that state. 

Now that you understand the rules, following the rules is very important no matter the size of your project.  Be over prepared and know how much money you need and have a detailed budget. This will show investors see you are serious and professional.   Make sure an entertainment attorney is on your team who can help you navigate the world of entertainment investment. 

COPYRIGHT & DISCLAIMER

Tifanie Jodeh is Partner at Entertainment Law Partners dedicated to corporate, business and entertainment affairs.  You may contact her at Tifanie@entlawpartners.com.

Tifanie Jodeh grants column recipients permission to copy and distribute this column and distribute it free of charge, provided that copies are distributed for educational and non-profit use, no changes or revisions are made, all copies clearly attribute the article to its author and include its copyright notice.

DISCLAIMER: Readers should consult with a lawyer before solely relying on any information contained herein.

Tifanie Jodeh authors article in the premiere issue of "Hollywood and Vine" magazine.

Co-founder and partner, Tifanie Jodeh, authored an article under the "Showbiz, Esq." section of the Hollywood and Vine premiere issue. 

The article is entitled, "Copyright and the Rule of Reason". An excerpt from the article includes a discussion on fair use. “Fair use” allows conditions under which content creators can use material that is copyrighted by someone else without paying royalties or needing to obtain a license. It gives the public a limited right to draw upon copyrighted works to produce separate works of authorship.  You can get your copy of the magazine by visiting:  http://www.hollywoodvinemag.com/premiereissue.  The kick off party was hosted by Editor in Chief, Angela Hutchinson, at the W Hotel in Hollywood.  You can find pictures of the entire event by clicking here: Launch Party.

Jodeh's next article for the mag is scheduled to be released in September 2011.

F*CK airs on the Documentary Channel.

Entertainment Law Partners congrats the producers (which includes our own Steve Kaplan) of "F*CK" which aired on the Documentary Channel. The film is a documentary on the expletive's origin, why it offends some people so deeply, and what can be gained from its use. For press and more info about the project, you can visit: Current or Hartford Advocate

Matthew Rhodes is named Prexy of Mandalay Vision

Our friend, Matthew Rhodes, has been named President of Mandalay Vision.  Just days after losing its head, Mandalay Vision has found a new leader and a new location. At the same time, parent company Mandalay Pictures has locked in $50 million in financing with Prescience, the company that financed The Kings Speech.  Matthew Rhodes has been named as president of the label, whose focus is on the indie side of the film business. (It recently made Soul Surfer and was behind The Kids Are All Right.)  The move follows the departure earlier this week of Celine Rattray, who is now partnering with Trudie Styler for Maven Pictures.

As part of the Rhodes era, Mandalay Vision will move from New York to Mandalay Pictures’ offices in Los Angeles.

Rhodes’s producing credits include as An Unfinished Life starring Robert Redford, Morgan Freeman and Jennifer Lopez; Southland Tales from director Richard Kelly; Passengers with Anne Hathaway; and the upcoming Nailed from director David O. Russell starring Jake Gyllenhaal and Jessica Biel.

On the financing side, Prescience will provide $50 million of production financing for a slate of up to six feature films over the next two years. Ealing Metro, the Prescience/Ealing Studios joint venture, will have an option to handle international sales on all titles that are identified under the deal.

The budgets for the projects will be in the $5 to $15 million range, with Prescience providing most of the funding, although greenlighting will happen by both entities.

Our client, Saddle Ranch Productions, Inks deal with Image Entertainment.

Congratulations to our client, Saddle Ranch Productions who inked a distribution deal with Image Entertainment as reported in the Hollywood Reporter.  Tifanie Jodeh negotiated the deal on behalf of Saddle Ranch Productions. To read the full article go to:  http://www.hollywoodreporter.com/news/saddle-ranch-productions-inks-distribution-189223

Entertainment Law Parnters named as the official law firm for the Santa Catalina Film Festival

ELP is a passionate supporter of independent film. We are honored to be named the official law firm of the Santa Catalina Film Festival!  Tifanie Jodeh and Steve Kaplan will oversee the project and provide a full range of legal services to the Festival.

In celebration of our new appointment, ELP is co-hosting a VIP, invite only Mimosa Mixer on Sunday, May 8th aboard the majestic Storm Maker III. 

About Santa Catalina Film Festival:

Hollywood's elite will descend upon the city of Avalon for the 1st annual Santa Catalina Film Festival to take place on May 6-8th, 2011.  Filmmakers from around the world will come to celebrate the art and entertainment of independent film within the Hollywood historic walls of the world’s first-ever built sound theater. This gorgeous 1,200-seat theater is where Cecil B. DeMille and Charlie Chaplin came to screen their very first talkie films. It is here where the Santa Catalina Film Festival’s Red Carpet arrivals, Opening Gala, and premiere film kicks-off.

For more info visit: www.catalinaff.org

Variety announces Troika Pictures slate

ELP congratulates Troika Pictures.  From the press release-

Robert Stein and Michael Helfant’s Troika Pictures announced today that five feature films are moving toward production at their company,  with Joel Schumacher,  Peter Cornwell,  Kenny Ortega,  Charles Herman-Wurmfeld and Elizabeth Allen.  Troika Pictures has also added Bradley Gallo to their team as Head of Production & Development.